421a Tax Abatement & Hunters Point. A day of reckoning to come?

421-a will make your head spin. But let’s see if we can sort it out a bit. The program, officially known as the 421a Tax Abatement, was created in the 70′s to encourage residential development in NYC. It offered developers a 10-25 year abatement on real estate taxes, which were passed on to the buyers of those newly constructed condos and coops. (ie, they don’t have to pay real estate taxes – abatement – you no pay)

Back then, the real estate market needed some serious stimulation. After a certain point, it became clear that lack of residential development was no longer an issue, so the program created ‘exclusion zones’ which required developers to create a minimum of 20% affordable housing units in order to receive the abatement.

Cut to now; when the Hunters Point section of LIC was famously rezoned in 2001, developers were granted a 421-a tax abatement of 15 years in order to encourage development in our little neighborhood. As of July of 2008, the honeymoon’s over. Hunters Point enters the ‘exclusion zone’ and developers will have to meet the affordable housing criteria in order to get the tax abatement. Any building with their foundation poured before July 2008 will still receive the abatement without the affordable housing requirement. But after… it’s a whole different ballgame.

So what does that mean for future development in Hunters Point? Well that’s the big question. Nobody knows really. It also depends on what’s going on with the housing market in general. Or does it? In 2007, as numerous outer borough hoods saw rising rates of foreclosure, Hunters Pointers were (and still are) flipping their condos. Is the hype about LIC and the waterfront strong enough to drive developers to build as feverishly as the abatement did?

While you’re pondering these questions, urbandigs has an excellent analysis on the long-term financial implications of buying a condo with a 421-a tax abatement.